The number of fund managers globally who are optimistic about macroeconomic conditions has reached a record high of 48 per cent, according to Bank of America Merrill Lynch (BAML)'s monthly fund manager survey.
For the first time since 2011, expectations for a “Goldilocks” environment – where growth is above trend and inflation is below trend, giving an effect which is “just right” – have exceeded expectations of secular stagnation, or little to no growth.
Fund managers were piling into banking stocks and Japan assets, the survey added, and out of utilities, emerging markets, healthcare and bonds – although Japan still lagged behind Europe and emerging markets overall.
“Europe is in vogue, according to global investors, with the overweight in Eurozone equities back near record highs and earnings per share expectations accelerating,” said BAML's European equity strategist Ronan Carr.
Investors were also bullish on bonds. A record 85 per cent of fund managers said bonds were overvalued, and 82 per cent said they thought bond yields would rise.
A policy mistake from the US Federal Reserve or the European Central Bank was considered to be the biggest risk to markets, followed by North Korea's nuclear regime and a crash in global bond markets.
But a fall in cash balances to 4.7 per cent from a peak of 5.8 per cent last year showed fund managers generally becoming more bullish, as they saw less need to hold cash to meet potential redemptions.